What Is a CRA Audit and Why Does It Happen?
The Canada Revenue Agency (CRA) administers tax laws and benefit programs to ensure fairness in Canada’s tax system. CRA audits are not random. Files are selected using risk-based assessments that compare your filings with industry benchmarks and third-party data.
Auditors analyze past errors, inconsistencies, and potential non-compliance. Proper documentation significantly reduces audit risk.
CRA Review vs. Full Audit: Understanding the Difference
Many taxpayers confuse a CRA review with a full audit, but they differ greatly in scope and severity.
A CRA review usually focuses on specific claims such as RRSPs, tuition credits, or medical expenses. A full audit examines your entire financial history, often spanning multiple years.
CRA Review vs. Audit: Key Differences
| Feature | CRA Review | CRA Audit |
|---|---|---|
| Scope | Specific claims | Entire financial records |
| Intensity | Document verification | Interviews, site visits |
| Consequences | Claim adjustments | Penalties and reassessments |
The 7 Common CRA Audit Triggers
1. Unreported Income (T-Slip Mismatches)
If your return does not match income reported by employers or banks, the CRA is immediately alerted.
2. Suspicious Cash Deposits
Frequent or large unexplained cash deposits are high-risk indicators, especially for self-employed individuals.
Cash Deposit Risk Levels
| Deposit Pattern | Risk Level | Reason |
|---|---|---|
| Frequent small deposits | Moderate | Requires verification |
| Occasional large deposits | High | Possible unreported income |
| Regular large deposits | Very High | Strong audit trigger |
3. Chronic Business Losses
Reporting losses year after year may cause the CRA to classify your business as a hobby.
4. Expenses Outside Industry Norms
Claiming expenses far above industry averages increases audit probability.
5. Personal or Excessive Expense Claims
Luxury or rounded-off expenses are red flags for auditors.
6. High-Risk Industries
Construction, real estate, and cash-based businesses face higher audit rates.
7. Related Party Transactions
Transactions between family members or controlled entities receive heightened scrutiny.
How to Reduce CRA Audit Risk
Follow the Six-Year Record Rule
Keep all tax records for at least six years after the end of the relevant tax year.
Maintain Proper Receipts
Receipts must include date, supplier, description, and GST/HST details.
Use Accurate Logbooks
Vehicle and home office claims require detailed, consistent logs.
Canada Tax Compliance Checklist
| Area | Action | CRA Requirement |
|---|---|---|
| Record Retention | Store all documents | 6 years minimum |
| Receipts | Verify format | Mandatory proof |
| Income Matching | Cross-check T-slips | Avoid discrepancies |
| Logs | Maintain daily records | High-risk deductions |
What to Do If You’re Audited
Respond promptly and professionally. Provide only requested documents.
You have the right to professional representation and fair treatment under the Taxpayer Bill of Rights.
Final Thoughts
Strong documentation, accurate reporting, and disciplined record-keeping are your best defenses against CRA audits.
FAQs
Q: How long should I keep tax records?
A: At least six years from the end of the tax year.
Q: Should I hire a professional during an audit?
A: Yes. A CPA or tax lawyer can protect your interests.
